UPDATE 3-Toronto stocks dive as Fed rate cut disappoints

Tue Dec 11, 2007 4:25pm EST
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(Updates with official close; adds comments, details)

TORONTO Dec 11 (Reuters) - The Toronto Stock Exchange's main index plunged more than 200 points on Tuesday as investors who expected an aggressive U.S. interest rate cut were disappointed by a more modest move and instability fears continued to weigh on the market.

The S&P/TSX composite index was down 216.65 points, or 1.55 percent, to close at 13,723.71.

The drop wiped out gains seen earlier in the session and came after the U.S. Federal Reserve cut the key fed funds rate by 25 basis points to 4.25 percent.

The central bank also reduced the discount rate it charges banks for direct loans by 25 basis points to 4.75 percent.

While most economists and many investors anticipated a quarter-point fed funds rate cut, some had called for a bolder reduction of 50 basis points as the U.S. copes with tight credit markets and a protracted housing slump.

However, those calling for a bigger cut were seen as being in the minority and the selloff took some observers off guard.

"I'm just very surprised we're getting such a negative reaction," said Glenn MacNeill, vice-president of investments at Sentry Select Capital Corp.

"We've seen pretty rocky markets as fear seems to be dominating the package here," he said, adding he viewed the rate cut as "good news."   Continued...